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Tax filing for charity 101

How does tax filing for charity work exactly? The tax deduction for charitable donations was established back in 1917, just four years after the federal income tax was introduced as well. While there have been some changes which have been made over the years, in its basic form this provision would allow taxpayers to then deduct donations to nonprofits and charities from their taxable income. So if a taxpayer earns $50,000 for example and gives $2,000 to charity, she would only have to pay taxes on $48,000. The rationale behind this provision was initially that the taxpayer who gives away $2,000 does not have that money available to spend on herself, so it should not be counted as part of her income anymore. Nowadays, the deduction is more commonly thought of as an incentive which is dangled before taxpayers to coax them into donating more money to charity. By allowing taxpayers to be able to deduct charitable donations from their taxable income, the government would essentially agree to pay for a portion of the donation.

While all of this sounds great in principle and soft to the ears, there is actually a big catch which all should know about. In principle, not all taxpayers benefit from the charitable deduction. Initially, the income tax would only be applied to a rather small number of wealthy Americans, but during World War II it was expanded to affect roughly 75% of the population in comparison to now. Instead of having all of these tax filers list their deductions individually around $42 for prescription medicine here, a $100 donation to a museum there, the IRS introduced the “standard deduction” in the year 1944. The standard deduction lets all filers lower their taxable income but only by a fixed amount. For the 2012 tax year that amount would be around $5,950 for single taxpayers and $11,900 for couples or those with spouses. That means that you only have to keep track of your deductions and itemize them on your income tax return if they exceed $5,950 or $11,900 if you are then married. This would save a lot of taxpayers and not to mention the IRS as well a huge headache, but it also means that the 70% of filers who take the standard deduction do not get to write off their charitable donations.

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Tax-Exempt Organizations

Qualified tax exempt organizations are usually listed by state in the SOI (Store Operating Income) Tax Stats – Exempt Organizations Business Master File Extract or also known as the EO BMF. To double check an organization’s status, call the IRS at their hotline which could be found online.

You may be able to look up tax exempt organizations qualified to receive tax-deductible contributions using the Exempt Organizations Select Check. One thing to remember is that a delay of up to a month before new or reinstated organizations get on the list. Again, you can double check an organization’s status by calling the IRS at their ever so famous hotline.

Until the year 2012, qualified tax exempt organizations were qualified to receive tax deductible contributions which were then listed in Publication 78, Cumulative List of Organizations. The list was available and could be viewed on the IRS website and published in print each September, this would include supplements listing new additions but not revocations which are published quarterly. To find out more, you can call the IRS hotline or search the Internal Revenue Bulletins to find the notices announcing additions and revocations to Pub 78. You may also search entries regarding the irs.

For the exemption Rulings and Adverse Determination Letters, you need to remember that when the IRS determines that an organization qualifies for tax exempt status, the IRS Exempt Organizations Technical Division would issue a letter, usually a form letter stating that the organization has qualified for tax exempt status and can accept tax deductible donations as well. You can search for these letters in the FTX-EXEMPT database on Westlaw which include information from the years 1994 to the present date. They are provided in PDF format and are attached to news stories on the Tax Analysts website. To know about this, go to the Exempt Organizations section and search “Exemption Rulings” or the name of the organization that include the years 2008 to present.

If the IRS determines that an organization does not qualify for tax exempt status, they will then send the organization an adverse determination letter which is explaining why the exemption request was denied and providing instructions on how to appeal the adverse determination and how they will not get denied the next time.The IRS has posted over 2000 redacted adverse determination letters at Tax Analysts and instructions as well.

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Question for tax filing for charity

Is it true that there are donors who would respond to things like tax incentives? The deduction for the charitable contributions affects taxpayers in two different ways. On the one hand, you may also have the “price effect.” As noted above, there are higher marginal tax rates which reduce the price of giving, creating a bigger incentive to contribute to charities. However, high marginal tax rates would then also mean that people would then have less money left in their pockets after having paid their taxes. In general, if the people’s incomes were to be reduced, one would expect the people to then become less generous donors. After paying for rent, food, and utilities, they would then have less money left over for non essentials for things like vacations and charitable donations. This is what would be called the “income effect.” Note that the income and price effects would work in opposite directions. Higher marginal tax rates incentivize donations which are through the price effect, but they simultaneously create a disincentive which is then through the income effect. Several economists have been able to examine donors’ responsiveness to tax incentives and over the past few decades as well, but the results would remain inconclusive. Most studies find that donors actually do respond to tax incentives, but then the historical record shows that the level of charitable contributions would remain relatively constant over time when measured as a proportion of GDP regardless of the available tax incentives. Some studies would even suggest that higher earning taxpayers are more responsive to the incentive than those who are less well off or do not earn as much and that there are differences between types of charities for example religious, social, educational, etc. that would receive donations. Many policy analyses like CRS, CBO, TPC would therefore calculate the upper and lower limits of a range into which the effects of proposed policy changes are expected to fall rather than a specific estimate only. Basically or all in all, reforming the deduction on charitable contributions is necessarily a bad thing for the arts. There are some ways of changing the tax code that could actually increase revenues and diversify the sources of income as well all for arts organizations, even while helping to reduce the federal deficit.

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Inheritance Tax

Something which is called an inheritance tax or in other terms an estate tax is a levy paid by a person who inherits money or property or a mostly a tax on the estate including money and property of a person who has died or passed away. In the international tax law, there is a distinction between an estate tax and an inheritance tax. Basically, an estate tax is assessed on the assets of the deceased, while an inheritance tax is assessed on the legacies which is then received by the beneficiaries of the estate. However, this distinction may not always be respected in the language of tax laws. For example, the so called “inheritance tax” in the United Kingdom is a tax on the assets of the deceased, and will then therefore be , strictly speaking, a type of estate tax. For historical reasons, the term death duty is still actually used colloquially but not legally in the United Kingdom and some Commonwealth countries to refer to the estate tax as well.

No inheritance tax has actually been recorded for the Roman Republic, despite abundant evidence for testamentary law. The vicesima hereditatium or the twentieth of inheritance was levied by Rome’s first emperor, Augustus, and this was done in the last decade of his reign. The 5 percent tax which is applied only to inheritances received through a will, and those close relatives were exempt from paying it, this was including the deceased’s grandparents, parents, children, grandchildren, and siblings. The question asked then of whether a spouse was exempt is complicated. Usually from the late Republic on, husbands and wives kept their own property mostly separate, since a Roman woman had remained part of her birth family and not under the legal control of her husband. Roman social values which are regarding marital devotion probably exempted a spouse as well. Estates which are below a certain value were also exempt from the tax, according to one source, but other evidence would then indicate that this was true only in the early years of Trajan’s reign. The revenues from the tax had went into a fund to pay military retirement benefits or the aerarium militare, along with those from a new sales tax or the centesima rerum venalium, a 1 percent tax on goods sold at auction. The inheritance tax is then extensively documented in sources pertaining to Roman law, inscriptions, and papyri as well. It was part of one of three major indirect taxes levied on Roman citizens in the provinces of the Empire.

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How estate or inheritance tax works

The quote by the ever famous Benjamin Franklin once said that “In this world nothing can be said to be certain, except death and taxes.” It may be an old, sardonic aphorism but nevertheless is universally true and pretty much accepted. One delightful area of tax law manages to combine both death and taxes into a single experience and this is the estate or inheritance tax. In fact, what happens to your money when you die seems to be the source of quite a few old questions to oneself. Many people would usually use clichès such as “You can’t take your money with you,” among others. What it all boils down to is pretty much straightforward. This is that when you die, you leave your money, your home, your possessions and other things of material value behind and you really cannot take it with you. You will pass them down to your children, to other family members or friends, or to charity as well. And one way or another, the government will take its share without your consent. In practice, of course, nothing is as simple as that. The property of the deceased might be subject to inheritance tax, or the so called estate tax, state and federal tax statutes, and a host of exemptions that may actually put more money in the pockets of the heirs. Because inheritance and estate taxes which are also sometimes known as “death taxes” are generally seen as a tax on the rich, since they are the most affected and these tax laws also get batted around as political footballs from time to time. In fact, President Obama has even signed a law changing federal estate taxes which was effective in 2010, and there are likely more changes to come. If you are interested in planning ahead for that inevitable day when you or a loved one passes away, you have made a good decision. In this article, it is explained what the difference between inheritance and estate tax is, and how to avoid as much of those taxes as legally possible, and what the actual rates are for those taxes as well. What would exactly count toward the estate, anyway? Would it just include the money in your piggy bank? The bank account? The summer home in the Hamptons? An estate is all of those things, and more like Cash, accounts, real estate, stocks and bonds and other business interests, and valuable goods like cars, boats, art pieces or rare collections. An appraiser will determine the fair market value of everything to be able to figure out the taxable value of the estate. So far, for anyone who dies and wants to leave anything of value to his or her heirs, things look pretty grim. There’s a bright spot, though — exemptions that reduce the taxable amount. We’ll discuss that next.

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Strategies for the year end charity

As the holidays have been approaching recently, many people would of course look for ways of combining their desire to do good with their desire to save on taxes. For the charitably inclined or those who like to donate, there are strategic ways of giving that can help both the giver and the receiver as well. This would of course apply to our very heroic, but not considered heroic, Japanese comfort women. Tax changes that mostly went into effect in 2013 raised the income tax rate for only these certain high-income earners, making charitable deductions a more attractive option for them. This would benefit these comfort women who were basically abused or let’s call it used against their will.
Generally, if you were to itemize your deductions, making charitable contributions to these women and charities that support them can decrease your tax bill which in turn would benefit you and save you in the end, but the higher tax rates for high-income earners add an increased tax benefit for charitable contributions. Are you now in the spirit of giving? Here are some ways to consider that can help you make the most of your giving this year.

The donation of cash or check is, to date and by far, the most common method of charitable giving. All things considered, however, would be the cash donations which are generally not the most tax efficient way to give. Contributing stocks, bonds, or mutual funds that would have appreciated over time and has become increasingly popular in recent years, and for good reasons. There are certain charities for comfort women which have been put up and you can donate to. Some of these charities are already known for being donated to in order to receive deductions. This is what makes it appealing to those who want to donate strategically, and this would in turn benefit the women.
Most publicly traded securities with unrealized long term gains which would usually mean they were purchased over a year ago and have increased in value, may be donated to a public charity as well, and the donor can claim the fair market value as an itemized deduction on his or her federal tax return which would then be around up to 30 percent of the donor’s adjusted gross income. Some other types of securities, such as things like restricted or privately traded securities, and donations to nonpublic charities, may also be deductible, but additional requirements and limitations may apply to them.


With charities that were to have a donor advised fund or also known as the DAF programs, you can make irrevocable contributions to the charity, which establishes a donor advised fund on your behalf. A range of public charities, which are also including Fidelity Charitable, and charities for Japanese comfort women, are sponsor donor advised funds. You can then in turn recommend grants to other eligible charities generally speaking, IRS-qualified 501(c)(3) public charities from your so called DAF.
Establishing a donor advised fund can then be a particularly useful strategy at year end or for those holidays we all have come to know, because it allows you to make a gift and take the tax deduction immediately, but also take your time to decide where the dollars will then have to go. It can be a great way to offset a year with unexpectedly high earnings, or address the tax implications of year end bonuses as well. Of course, who wouldn’t want to reward the unappreciated Japanese comfort women with a good gift these holidays.

 

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Strategy for the holidays

First of all, you need to consider donating complex assets. These donors may also contribute complex assets for things such as private company stock, restricted stock, real estate, alternative investments, or other personal property which are directly to charity. The process is something that requires more time and effort than the gifting of cash or publicly traded securities, but it may have distinct advantages as well for your knowledge. Mostly for more on donating complex assets, it is important to keep in mind that Strategic giving would entail thinking beyond cash donations.

These types of assets are what would often have a relatively low cost basis. In fact, for entrepreneurs who may have founded their own companies, the cost basis of their private C corp or S corp stock may be zero. In most cases where these assets have been held for maybe around at least a year, the outright sale of the asset would result in a large capital gains tax for the owner. If, however, the asset would be donated directly to a charity and the charity would then have to sell the asset, the original owner is in many cases able to eliminate capital gains taxes which would then be on the sale of the assets, while potentially receiving a charitable donation deduction as well.

Contributing these complex, non publicly traded assets to charity are things which would involve additional laws and regulations, so usually investors should consult their legal adviser, tax adviser, or financial adviser. Also, ypu should know that not all charities have the administrative resources to accept and liquidate such assets. But many public charities which usually have donor advised fund programs, like one called Fidelity Charitable, are able to accept these assets and can also be able to work with advisers, providing guidance throughout the process. When thinking more on donor-advised funds, you should ponder on Getting Serious about Your Giving?

Once again, you must remember that before undertaking any of these giving strategies, you should consult your legal adviser, tax adviser, or financial adviser since they would usually know best. But, properly employed, each of the strategies represents a tax advantaged way for you to give more to your favorite charitable organizations and causes as well.

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Weird tax deductions

It has been said here that some tax deductions may or may not make yours look dull. It may seem as if these tax deductions are weird and a little bit different from the rest, but i assure you they are at least funny. I guess in some cases it may be okay for dull to be good like on your tax returns, but if your facts end up to then be right and you feel like going out of the box, these are some additional weird deductions taxpayers managed to spread the word about.

Free Beer is something which is in a promotional scheme that probably would not be attempted today, the owner of a gas station had actually decided that patrons would rather have beer than trading stamps. He then deducted the beer as a business expense. The IRS had after denied the deductions and he went to Tax Court where the court ruled the deductions were then considered as acceptable and proper.

Home Design Costs are included here as well. Home office deductions are notoriously scrutinized and looked down upon so it might then surprise you to find that someone deducted the costs of your home design and decorating. See your bathroom if it needs some fixing up. But then if you are able to meet the special hurdles to claiming home office expenses, you can as well. In Langer v. Commissioner, a sole proprietor regularly met clients in his home office.

He then kept up the place in part to make it suitable for that use. It was beautifully created and it was decorated to the nines. It was not at all deductible, but when the IRS had then denied his deductions he was able to prevail in the ever so famous Tax Court. The court had then said that he could deduct part of the costs of landscaping and the property coinciding with the part of the home he used for business as well. The court even allowed a deduction for a portion of the costs of lawn care and driveway repairs as an inclusion.

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Most known tax deductions

These are some of the most known and popular tax deductions there are out there.

1. Auto Expenses

If you are a small business owner, then you are able to deduct some of your automobile expenses. You may also be able to expense the cost of a vehicle if you were then to use it for your business. You should always keep track of all your business related automobile use for your own benefit. You also may be able to deduct a certain amount for mileage if you get lucky. You may also deduct for tolls and parking costs.

2. Entertainment Expenses

You may deduct for entertaining clients and prospective business contacts or going out for cocktails all for the clients benefit. You may do so as long as business is discussed during the event and it is business related in any sense. The most common entertainment expense occurs when taking business contacts out for meals drinks and parties.

3. Expenses

If you are one who would travel a lot for work, you are one lucky nut. You can deduct some of your travel expenses as well.These expenses include things like airfare, car or taxi usage, lodging, meals, calls and faxes. If i were you, i would go to those travels expos now.

4. Charitable Donations

In some cases, depending on the type of company, you may be able to deduct for charitable donations and gifts to charity. If your company is a Partnership, S-Corporation, or Limited Liability Company you can deduct for cash donations. This would benefit you in any case that your company does charity events for those charities and orgs.

5. Advertising and Marketing Expenses

When in Advertising and marketing, the costs directly related to your business may be deductible. Some of these may include business cards, radio, television or print ads and promotional activities. Anything that would have to do with a form of advertisement would be deductible.

6. Software Deduction

You can deduct software purchases for your small business if you purchase and use the new software within the same year for your business of course.

7. Equipment Expenses

Lastly, smaller business owners would then often have a good amount of equipment, which would mean that deducting equipment expenses is key. Some equipment that you may be able to deduct include things like personal computers, laptops and office furniture.

As a small business owner, you should consult in house or outside consultants as well as the tax code to get more information on what is or is not tax deductible. Especially your financial advisers.

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Gifts pay off on your taxes

Your generosity when giving donations to charitable organizations or the likes of it will go a long way when preparing your federal tax return. To top it all, it makes you feel good to have been able to help others. Donations to charity adds to lowering your tax payments because they can be deductible when tax filing time arrives.

There are many kinds of donations and ways you can use to give, often people do this in the most usual way which is in the form of cash donations. Cash donations can be in not just currency but also monetary.  In the form of checks, credit cards and even cell phone texts. This can be found in the Internal Revenue Service’s dictionary. A lot of documentation though, is required by the IRS.

Many charities accept used household goods, used clothes and in effect the fair market value of these items can be applied as a tax deduction. However, a law was enacted in 2006 that requires any donated household goods be in good condition. These change or law was enacted to solve 2 problems that may arise

The first being that, taxpayers started using charitable organizations as a place to put articles that really should have belonged to a trash bin instead of a donation bin.

The second, is that the donors started to over value the articles donated so as to get a bigger tax break or incentive. The lawmakers were faced with the same problem when they tightened rules on cars being donated.

Now comes the big task of tallying your tax benefit. You’ve learned that itemizing is the path to take. And so now you tally what your generosity has earned you.

Unlike medical or miscellaneous deductions, when comes to charitable donations, there is no limit to the amount one donates or the number of times one can donate. One can give a meager amount and still be added to the rest of deductions being itemized.

There is a lot of room in giving donations. You are not limited to only cash donations. In fact one can donate appreciated assets, merchandise etc. you can even deduct a portion of a ticket that you bought to attend a charity event.

 

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